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Under the influence: future mobility, shaped by global megatrends

Stakeholders must embrace change to succeed in the automotive industry of the future, writes Shwetha Surender, Program Manager, Mobility in Frost & Sullivan’s Automotive & Transportation division

Transport is central to any economy; the sector contributes over US$5.4trn annually to the global economy, and provides essential infrastructure that drives economic growth and enables the movement of goods, services, and people. The automotive and transportation landscape is undergoing a revolution, heavily influenced by a few key trends.

Urbanisation

In 2010, 50% of the world’s population was living in cities. By 2030, the world’s urban population is expected to rise to 60% and by 2050 to 70%. The level of investment in global transportation infrastructure, on the other hand, is expected to grow at a slower pace of around 5% CAGR over the next decade. This is likely to lead to challenges such as increased congestion and rising pollution unless there is better utilisation of the existing infrastructure.

Congestion is already a serious challenge in many urban conglomerates. The damage associated with congestion, right from wasted fuel costs to loss of productive time, are estimated to cost economies anywhere between 2% to 4% of their GDP today. Air quality has emerged as another serious concern. The World Health Organization (WHO) estimates that over 7 million premature deaths annually are linked to air pollution. As the demand for mobility increases and new car registrations rise from 90 million in 2015 to over 125 million by 2025, the negative externalities associated with these issues are expected to rise exponentially.

Connectivity

Frost and Sullivan’s research identifies connectivity as a major trend that serves as the under bed required for all future digital services. More smartphones are now sold in a year than there are cars on the planet, and the number of gadgets available is multiplying five times faster than people. The connected device universe is expected to explode from less than five billion to 80 billion by 2025. This technology boom will facilitate the development of connected car communication as well as underpin the evolution of smart mobility services.

The cognitive era

The second key trend is an evolution of artificial intelligence. In a world of cognitive artificial intelligence, machines will be able to make their own decisions simply because there will be more insightful real-time data, this will give them the context to make sense of it and react just like a human would.

In future, cars will be cognitive; not only will they recognise voices and be able to optimise the journey; they will also incorporate other cognitive technologies of AI such as computer vision and machine learning. This will change the future of cars, challenge traditional business models and create immense potential for innovation.

The first step in this journey is the automation of cars. There is still considerable ambiguity concerning the legislation of autonomous vehicles, which will determine the commercialisation of the technology. Frost & Sullivan’s analysis forecasts that 8 million semi and highly automated vehicles will enter the market in the next ten years. Fully automated cars are expected to be commercialised by 2030, which is valued as a US$60bn per annum market opportunity.

Once the commercialisation of autonomous driving kicks in, it will have far reaching impacts. For instance, in the US commercial trucking market, around 300,000 truck drivers could lose their jobs. The entire landscape, as well as the future of cities, will change as a result of this technology shift.

With European car occupancy at just 1.6 people, there is a tremendous opportunity to reduce private vehicle trips, cost, and emissions through sharing journeys with others

Social trends

The next key trend is the change in the mindset of the future customer; by 2025, 50% of the global working population will be made up of Millennials. One of the biggest trends in this demographic is the reduction in the level of driving, with people expected to drive around 18% less per day in the US by that time. Since 1980, driver’s license ownership among 20-25 year olds has dropped 20% in the US. Research has shown that 9% of Millennials do not want to drive because they are worried about the environmental implications. These changing attitudes will drive the growth of shared mobility business models as well as greater utilisation of existing infrastructure in cities as more people turn to public transport.

We are also seeing a shift in attitudes where people are prioritising access over ownership making more sustainable decisions. In response, there is an emergence of a wide range of platforms to enable collaborative consumption like peer-to-peer platforms for car-sharing and ride-sharing as well as shared marketplaces.

As autonomous technology causes a fall in the price point of new mobility services, new business models will also begin competing with public transport and the entire transportation landscape will see a paradigm shift with convergence across the board

Smart is the new green

The next trend involves the evolution of the concept of ‘smart’ in various industries. In the future, cars are just part of the equation. In a truly smart city, cars will communicate with each other as well as with roads, crosswalks, toll ways and parking structures. Vehicles will know they need to keep a safe distance from each other, crosswalks will tell the car to slow down if there is a pedestrian approaching. Cars will update each other on real time traffic. Technology underpins this movement toward smart, be it smart cities or smart mobility within those cities.

An example of the first step toward smart mobility is a pilot project in Manila. The city is collaborating with the World Bank and Grab taxi to analyse Grab taxis’ GPS traffic data and provide accurate, real-time information for initiatives that can help reduce traffic congestion and improve road safety.

Global car sales are estimated at around US$2.3trn, but the market opportunity for bringing together all forms of mobility is valued at around US$5.4trn

The emerging urban mobility landscape

Within the traditional concept of mobility, urban mobility, in particular, is undergoing a revolution, heavily influenced by these trends.

There is a gap emerging in the urban mobility landscape between solutions that cover longer distances at lower costs and services available on demand, often at a higher price. For instance, public transit, whilst cheap, is typically limited in service scope by the availability of infrastructure and routes. On the other hand, services such as taxis and other on-demand door-to-door models are more convenient but traditionally have been the most expensive. In-between the two ends of the scale, new models are evolving, such as first and last mile solutions like bike sharing, micro mobility as well as long distance solutions like car-pooling services that are available at a very cheap cost per distance travelled. These services are gaining traction in the market because they are starting to solve some of the core challenges we face in our cities and in other areas.

Rise of car-sharing

This need for more efficient and effective mobility has underpinned the growth of the car-sharing market. Frost & Sullivan’s research has found that the global car-sharing market is expected to grow from 7 million members in 2015 to reach 35 million members by 2025. The landscape is rapidly changing as well; on one hand, private investment into car-sharing is continuing, but it tends to be the larger providers that are growing into new markets e.g. Zipcar, Car2go, Drive Now and Bollore. The market is beginning to consolidate with the exit of some of the start-ups in Europe, such as Cite car and Twist and Hertz 24/7 shutting down its US operations.

Apart from urbanisation, other mega trends such as connectivity and digitisation have had an influence on this market. Advances in vehicle sharing technology have emerged as one of the biggest drivers for car-sharing and connectivity plays a big role in making the service more accessible and convenient for customers. Data analytics is used to predict where demand will arise and ensure more effective rebalancing of the fleet.

Advances in vehicle sharing technology have emerged as one of the biggest drivers for car-sharing and connectivity plays a big role in making the service more accessible and convenient for customers

In the mid- to long-term, autonomous driving will have a significant impact on the model. In the mid-term, automated parking will make the customer experience more seamless, but the real impact will be realised when vehicles become fully automated; at that point, car-sharing will start merging with other business models.

Ride-sharing – the next hot social transportation trend

With European car occupancy at just 1.6 people, there is a tremendous opportunity to reduce private vehicle trips, cost, and emissions through sharing journeys with others. Frost & Sullivan’s definition of ride-sharing is when a driver is making a trip and is looking to monetise the spare three or four seats in the vehicle.

The European market for ride-sharing alone had over 30 million members in 2016. Over the last year, there has been increased investment into ride-sharing leading to a spree of mergers and acquisitions; for instance, BlaBla car acquired Carpooling.com and AutoHop in Europe, and expanded into emerging markets such as India, Russia, and Turkey.

Transport Network Companies (eHail models) such as Lyft and Uber are merging with ride-sharing through the launch of services such as Lyftline and Uber pool, where passengers share the cost of their journeys. The delineation of the business models is beginning to blur and this is expected to become more pronounced as autonomous driving comes into the picture.

Proliferation of the ride-hailing concept

This market had the relatively highest growth and media exposure in 2015 and is facing a backlash from licensed taxi drivers and regulators alike. It has attracted significant recent investment; in 2016 alone, to date over US$9bn has been invested in ride-hailing apps.

Increasingly, the traditional taxi market is getting connected to a tech platform. Apps such as Hailo, Gett, Curb and Arrow have emerged, and their business model involves connecting traditional taxis with customers.

Another trend is the expansion of the business model; the market is no longer limited to taxi and private hire services but is also moving to logistics and bringing in different service providers through that platform.

Amongst the mega trends, autonomous driving in conjunction with an intelligent transport ecosystem is likely to have the biggest impact on the taxi and eHail market. It would increase the utilisation of each vehicle and remove the driver cost from the equation, leading to a drop in customer fares. It could also lead to a shift away from asset light platforms to an asset-heavy model, as the need to invest in an autonomous fleet might arise.

Roadmap towards mobility of the future

Global car sales are estimated at around US$2.3trn, but the market opportunity for bringing together all forms of mobility is valued at around US$5.4trn. Integrated mobility has a role in bringing some of these solutions together on a platform and linking them to the existing infrastructure. Start-ups and B2C apps such as Citymapper, Moovit and Moovel are targeting the high growth B2C opportunity. However, for growth to really take off, there is a need for behavioural changes, increased investment both from the public and the private sectors as well as a change in policy across different markets. The advancements in technology underpin a shift towards more integrated multimodal mobility.

In the long term, the lines between different services will blur, and with the commercialisation of autonomous driving, there will cease to be a distinction between a ‘drive yourself’ model, such as car-sharing and a ‘be driven’ model such as taxis.

As autonomous technology causes a fall in the price point of new mobility services, these business models will also begin competing with public transport and the entire transportation landscape will see a paradigm shift with convergence across the board. In the long term, the key trends will lead to a convergence between transportation, connectivity and autonomous, which will unearth the true potential of mobility. Those stakeholders who embrace all three pillars together are the ones likely to succeed.

 

This article appeared in the Q3 2016 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.